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3 Diversified Chemical Stocks to Escape Industry Challenges
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The Zacks Chemicals Diversified industry is plagued by sluggish demand in certain markets, including consumer durables and building & construction, and some residual impacts of consumer inventory destocking. Lower consumer spending due to inflationary pressures in Europe and a slow recovery in China are impacting demand.
Industry players like DuPont de Nemours, Inc. (DD - Free Report) , FMC Corporation (FMC - Free Report) and Cabot Corporation (CBT - Free Report) are banking on strategic measures, including operating cost reductions and aggressive price hikes, to tide over the challenging environment.
About the Industry
The Zacks Chemicals Diversified industry consists of manufacturers of basic chemicals, plastics, specialty chemicals and agricultural chemicals. Companies in this space serve a host of end markets, such as automotive, building & construction, transportation, electronics, aerospace and agriculture. Basic chemicals are produced in large quantities and include petrochemicals and intermediates (such as ethylene, propylene and benzene), polymers (including plastic resins such as polyethylene, polypropylene and polyvinyl chloride), and inorganic chemicals (such as chlorine, caustic soda and titanium dioxide). Specialty chemicals that include catalysts, specialty polymers and coating additives are used in specific fields based on their performance. Agricultural chemicals include herbicides, fungicides and insecticides that are used to protect crops from disease, pests and weeds.
What's Shaping the Future of the Chemicals Diversified Industry?
Demand Headwinds From End-market Softness: Companies in the chemical-diversified space remain challenged by demand weakness in certain key markets. The sluggishness in the building & construction and consumer electronics markets are the key concerns. In North America, uncertainties surrounding the U.S. housing market are weighing on building & construction. Softer demand in industrial and consumer durables is hurting chemical volumes. Weaker global economic activities have led to a higher level of uncertainties, which may affect chemical volumes over the near term. While the unprecedented customer inventory destocking that started in late 2022 and weighed heavily on the industry through the first half of 2024 is nearing completion, some lingering impacts of the same are expected to continue in the near term.
Slowdown in Europe and China a Concern: A slower recovery in economic activities in China is hurting chemical demand in that country. China is seeing slower economic growth and a sluggish real estate market. A weak property market and a slowdown in infrastructure investments have led to softer demand. The real estate sector has taken a hard hit amid a decline in new home prices, property investment and housing sales. The slowdown in Europe, resulting from the war in Ukraine and weaker consumer spending due to high levels of inflation and high interest rates, has also led to softer demand in that region. The energy and feedstock inflation has resulted in reduced industrial production and consumer spending in Europe. The ongoing weakness in these key regions is likely to impact the demand for chemicals over the short haul.
Strategic Actions to Aid Results: The companies in this space are taking a host of strategic measures, including cost-cutting and productivity improvement, operational efficiency improvement and actions to strengthen the balance sheet and boost cash flows. In particular, the industry participants are aggressively implementing actions to bring down costs. These include the reduction of discretionary spending. The industry participants are also raising selling prices to counter cost inflation. Such moves are likely to help the industry sustain margins amid the prevailing challenges.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Chemicals Diversified industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #190, which places it at the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a gloomy near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector & S&P 500
The Zacks Chemicals Diversified industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has gained 4.5% over this period compared with the S&P 500’s rise of 32.4% and the broader sector’s increase of 13.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 11.43X, below the S&P 500’s 19.20X and the sector’s 11.99X.
Over the past five years, the industry has traded as high as 13.15X, as low as 5.33X and at the median of 8.96X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
3 Chemicals Diversified Stocks to Keep a Close Eye on
FMC: Pennsylvania-based FMC is an agricultural sciences company offering innovative solutions to farmers globally. It benefits from efforts to expand its product portfolio through new product launches. FMC is investing in technologies as well as new product launches to enhance value to the farmers. New products launched in Europe, North America and Asia are gaining significant traction. The company is also expected to benefit from reduced input costs, a favorable product mix and its cost-control actions. FMC is also making progress with its global restructuring and cost-reduction program, which is expected to contribute to its adjusted EBITDA.
The Zacks Consensus Estimate for FMC’s earnings for 2024 has been revised upward by 0.6% over the last 60 days. It has delivered a trailing four-quarter average earnings surprise of roughly 6.2%. FMC sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: FMC
DuPont: Delaware-based DuPont provides technology-based materials and solutions to markets including electronics, transportation, construction and water. DuPont is expected to gain from its productivity and pricing actions. It continues to implement strategic price increases to offset cost inflation. These actions are likely to support its margins. DD remains focused on driving growth through innovation and new product development. Its innovation-driven investment focuses on several high-growth areas. It remains committed to driving returns from its R&D investment.
DuPont, carrying a Zacks Rank #2 (Buy), has a projected earnings growth rate of around 7.5% for 2024. DD also beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 11.9%.
Price and Consensus: DD
Cabot: Massachusetts-based Cabot is a global specialty chemicals and performance materials company. CBT’s Performance Chemicals division is seeing strong growth driven by higher volumes and a favorable product mix, particularly in specialized carbons and fumed metal oxides. This growth is supported by robust demand across the automotive, infrastructure and semiconductor markets. The Reinforcement Materials segment is also benefiting from higher volumes in Europe and Asia Pacific, improved pricing and a stronger product mix in 2024 customer agreements. CBT’s strong cash generation also facilitates a balanced capital allocation approach that emphasizes strategic investments, long-term earnings growth and shareholder returns while preserving a solid investment-grade balance sheet.
Cabot, a Zacks Rank #2 stock, has expected earnings growth of 31.4% for fiscal 2024. The Zacks Consensus Estimate for CBT’s earnings for fiscal 2024 has been revised upward by 4.3% over the last 60 days.
Price and Consensus: CBT
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3 Diversified Chemical Stocks to Escape Industry Challenges
The Zacks Chemicals Diversified industry is plagued by sluggish demand in certain markets, including consumer durables and building & construction, and some residual impacts of consumer inventory destocking. Lower consumer spending due to inflationary pressures in Europe and a slow recovery in China are impacting demand.
Industry players like DuPont de Nemours, Inc. (DD - Free Report) , FMC Corporation (FMC - Free Report) and Cabot Corporation (CBT - Free Report) are banking on strategic measures, including operating cost reductions and aggressive price hikes, to tide over the challenging environment.
About the Industry
The Zacks Chemicals Diversified industry consists of manufacturers of basic chemicals, plastics, specialty chemicals and agricultural chemicals. Companies in this space serve a host of end markets, such as automotive, building & construction, transportation, electronics, aerospace and agriculture. Basic chemicals are produced in large quantities and include petrochemicals and intermediates (such as ethylene, propylene and benzene), polymers (including plastic resins such as polyethylene, polypropylene and polyvinyl chloride), and inorganic chemicals (such as chlorine, caustic soda and titanium dioxide). Specialty chemicals that include catalysts, specialty polymers and coating additives are used in specific fields based on their performance. Agricultural chemicals include herbicides, fungicides and insecticides that are used to protect crops from disease, pests and weeds.
What's Shaping the Future of the Chemicals Diversified Industry?
Demand Headwinds From End-market Softness: Companies in the chemical-diversified space remain challenged by demand weakness in certain key markets. The sluggishness in the building & construction and consumer electronics markets are the key concerns. In North America, uncertainties surrounding the U.S. housing market are weighing on building & construction. Softer demand in industrial and consumer durables is hurting chemical volumes. Weaker global economic activities have led to a higher level of uncertainties, which may affect chemical volumes over the near term. While the unprecedented customer inventory destocking that started in late 2022 and weighed heavily on the industry through the first half of 2024 is nearing completion, some lingering impacts of the same are expected to continue in the near term.
Slowdown in Europe and China a Concern: A slower recovery in economic activities in China is hurting chemical demand in that country. China is seeing slower economic growth and a sluggish real estate market. A weak property market and a slowdown in infrastructure investments have led to softer demand. The real estate sector has taken a hard hit amid a decline in new home prices, property investment and housing sales. The slowdown in Europe, resulting from the war in Ukraine and weaker consumer spending due to high levels of inflation and high interest rates, has also led to softer demand in that region. The energy and feedstock inflation has resulted in reduced industrial production and consumer spending in Europe. The ongoing weakness in these key regions is likely to impact the demand for chemicals over the short haul.
Strategic Actions to Aid Results: The companies in this space are taking a host of strategic measures, including cost-cutting and productivity improvement, operational efficiency improvement and actions to strengthen the balance sheet and boost cash flows. In particular, the industry participants are aggressively implementing actions to bring down costs. These include the reduction of discretionary spending. The industry participants are also raising selling prices to counter cost inflation. Such moves are likely to help the industry sustain margins amid the prevailing challenges.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Chemicals Diversified industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #190, which places it at the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a gloomy near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector & S&P 500
The Zacks Chemicals Diversified industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has gained 4.5% over this period compared with the S&P 500’s rise of 32.4% and the broader sector’s increase of 13.1%.
One-Year Price Performance
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Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 11.43X, below the S&P 500’s 19.20X and the sector’s 11.99X.
Over the past five years, the industry has traded as high as 13.15X, as low as 5.33X and at the median of 8.96X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
3 Chemicals Diversified Stocks to Keep a Close Eye on
FMC: Pennsylvania-based FMC is an agricultural sciences company offering innovative solutions to farmers globally. It benefits from efforts to expand its product portfolio through new product launches. FMC is investing in technologies as well as new product launches to enhance value to the farmers. New products launched in Europe, North America and Asia are gaining significant traction. The company is also expected to benefit from reduced input costs, a favorable product mix and its cost-control actions. FMC is also making progress with its global restructuring and cost-reduction program, which is expected to contribute to its adjusted EBITDA.
The Zacks Consensus Estimate for FMC’s earnings for 2024 has been revised upward by 0.6% over the last 60 days. It has delivered a trailing four-quarter average earnings surprise of roughly 6.2%. FMC sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: FMC
DuPont: Delaware-based DuPont provides technology-based materials and solutions to markets including electronics, transportation, construction and water. DuPont is expected to gain from its productivity and pricing actions. It continues to implement strategic price increases to offset cost inflation. These actions are likely to support its margins. DD remains focused on driving growth through innovation and new product development. Its innovation-driven investment focuses on several high-growth areas. It remains committed to driving returns from its R&D investment.
DuPont, carrying a Zacks Rank #2 (Buy), has a projected earnings growth rate of around 7.5% for 2024. DD also beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 11.9%.
Price and Consensus: DD
Cabot: Massachusetts-based Cabot is a global specialty chemicals and performance materials company. CBT’s Performance Chemicals division is seeing strong growth driven by higher volumes and a favorable product mix, particularly in specialized carbons and fumed metal oxides. This growth is supported by robust demand across the automotive, infrastructure and semiconductor markets. The Reinforcement Materials segment is also benefiting from higher volumes in Europe and Asia Pacific, improved pricing and a stronger product mix in 2024 customer agreements. CBT’s strong cash generation also facilitates a balanced capital allocation approach that emphasizes strategic investments, long-term earnings growth and shareholder returns while preserving a solid investment-grade balance sheet.
Cabot, a Zacks Rank #2 stock, has expected earnings growth of 31.4% for fiscal 2024. The Zacks Consensus Estimate for CBT’s earnings for fiscal 2024 has been revised upward by 4.3% over the last 60 days.
Price and Consensus: CBT